Dinamika Global | Volume 02 | No.01 | Juni 2017 M. Dudi...

Dinamika Global | Volume 02 | No.01 | Juni 2017

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ECONOMIC RELATIONS OF ASEAN (INDONESIA) + CHINA

AFTER AIIB

M. Dudi Hari Saputra

Abstract

This paper purpose is to predict Economic Relations of ASEAN(Indonesia) + China After AIIB (the Asian InfrastructureInvestment Bank), answering economic crisis questioned that hitthe United States and the European Union in 2009 and is still inthe recovery process until now, and has made many of Asiancountries particularly East Asia such as China began adiversification of market and investment destination and increaseeconomic cooperation to the other regions (ASEAN), particularlyIndonesia. Therefore, at first, this paper tries to analyze Chinaeconomic relations with Indonesia. Second, the effective rate ofChina trade and investment in Indonesia. Third, prediction ofIndonesia and China economic situation after AIIB cooperation.Indonesia relate governance with national policy, which will becorrelated with the level of supranational/regionalintergovernmental (regionalism and integration) which aims,among others; financial sector to stimulate research anddevelopment, increase the spread of technology, reducingmanagerial differences in running the business and implementinga system to change for the better.


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1) China as Big Trader in Indonesia

a) Regionalism and Integration

ASEAN (Indonesia) is a regional organization to regional

countries in Southeast Asia has become one of the superb,

because of passion and huge market growths. Premises versus

Europe where regionalization needs to be done to create

distinctive and protected areas, then in East Asia based on an

open membership and global liberalization.

And this form of so-called "open-regionalism" formed within

APEC and AIIB, after the financial crisis of 2009, the ASEAN

(Indonesia) + China to find its momentum as an "open-

regionalism". China is to be a liaison utilizing regional and

global economy, which makes China was able to establish free

trade with the United States and the EU, and at the same time

free trade with ASEAN (Indonesia) (Woosik Moon: 2011).

Regionalism and Integration in East Asia initially

considered lags behind other regions, although the integration

process continues (Chang Jae Lee: 2008). Regionalism East and

Southeast Asian region to find its momentum departing from

the global crisis centered in the United States and the European

Union which has strong trade ties with the East Asian countries

that have a high risk to economic growth.

Thus, inter-regional trade is viewed as a potential engine of

economic growth. ASEAN (Indonesia) + China is considered

representative of this trend (Donghyun Park, Inwon Park, and

Gemma Esther B. Estrada: 2012)


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Therefore, China is trying to expand its influence in

financial and infrastructure aspects by AIIB (the Asian

Infrastructure Investment Bank) to enlarge the capital pool

indispensable for infrastructure development in Asia. As an

innovative platform for multilateral cooperation, AIIB will

advance Asian financial cooperation under the principle of

openness and universal benefits. And China welcomes the

participation of other Asian countries in the establishment of

AIIB (Zhang Monan, 2015).

b) Implementation and Transformation of ASEAN (Indonesia) +

China

ASEAN (Indonesia) relate governance with national policy,

which will be correlated with the level of supranational /

regional intergovernmental which aims, among others; financial

sector to stimulate research and development, increase the

spread of technology, reducing managerial differences in

running the business and implementing a system to change for

the better (V. Rodriguez and A. Soeparwata: 2012).

ASEAN (Indonesia) shows the crucial role of state and

government (state-centric) in promoting the domestic industry

to seize a larger market, so as to create growth and prosperity.

As well as showing the active role of government in the

integration, which was previously regarded as a monopoly of the

industry. And ASEAN (Indonesia) seeks to implement PTA

(Preferential trade agreements), FDI (foreign direct investment),

mergers and acquisitions in order to increase welfare (i.e.:


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reduce poverty) and competition policy (Toby Kendall and Cillian

Ryan: 2009).

Productivity effects of spillovers of China’s FDI by AIIB

later, which flows into the ASEAN (Indonesia) countries. And the

contemporary test results of studies using direct and indirect

approaches have shown strong evidence that FDI causes

productivity growth in the ASEAN (especially Indonesia)

countries, which has a correlation of theoretical predictions

regarding the relationship between FDI and productivity

overflow (Nathapornpan Piyaareekul Uttama and Nicolas Peridy:

2010).

Competition policy has also brought a change in the

dynamic comparative advantage between ASEAN (Indonesia)

and China. By using statistical methods and econometric RSCA

index (symmetric revealed comparative advantage), has been

demonstrated that increasing the comparative advantage

between countries of ASEAN (Indonesia) + China and compete

Japan’s influence, which receives the support of increased

production of increasingly de-specialization. And almost all

ASEAN (Indonesia) + China began to change the economic and

trade strategies of raw materials to manufacture (Tri Widodo:

2009).

In addition, the application of FTA (free trade agreement)

and AIIB between ASEAN (Indonesia) + China has a beneficial

impact for ASEAN, based on 3 factors:


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1. Presence and network vertical FDI investment between

China and Indonesia (ASEAN) member countries after AIIB

2. Any hope of economic growth in China for sustaining trade

and economic development, when US and EU economy still

in crisis

3. The difference between the varied economies of member

countries of ASEAN (Indonesia) + China.

2) China’s Investment and Trade in Indonesia

ASEAN has 602 million populations; roughly 250 million

live in Indonesia, the most populous country in the bloc. In

nominal GDP terms, Indonesia is the largest economy in ASEAN.

Together with China and India, Indonesia is one of only three

developing economies in Asia that are members of the Group of

20 (G20). The country’s real GDP growth averaged 5.8 percent

from 2003 through 2012, the fourth highest of all ASEAN

members. However, Indonesia remains a relatively poor country:

According to World Bank, GDP per capita was $3,475 in 2013,

placing it on the higher end of lower-middle-income countries.

Indonesia struggles with poverty and unemployment,

inadequate infrastructure, corruption, a complex regulatory

environment, and unequal resource distribution among regions.

At 13 percent of GDP, agriculture retains a large share of overall

economic activity, while services account for a smaller share of

GDP than industry (CIA World Fact Book: 2017).

Indonesia’s trade-to-GDP ratio of 43 percent is one of the

lowest in the ASEAN bloc. Unlike most of its neighbors,


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Indonesia runs a goods trade deficit with the world. China

represents Indonesia’s second-largest export market and its

largest source of imports (see Table 1). Along with Japan and

Singapore, it is the primary contributor to Indonesia’s trade

deficit. This was not always the case: Table 2 shows the

transition of Indonesia’s trade balance with China from a

surplus to a deficit, starting in 2007. Imports from China rose

steadily from over $4 billion in 2003 to $12.6 billion in 2007 and

increased to almost $37 billion in 2013 (World Bank: 2017).

Table 1: Indonesia’s Export and Import Partners in 2013


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Table 2: China’s Goods Trade with Indonesia

(US$ millions)

The composition of trade between China and Indonesia

resembles a resources-for-manufactures pattern. Nearly half of

Indonesia’s imports from China are machinery and electrical

products, to the extent that China constitutes one- third of

Indonesia’s foreign purchases in this category. Conversely,

fuels, metals, wood, and vegetable products make up three-

quarters of Indonesia’s exports to China, compared to 45

percent of its exports to the world. Along with Australia,

Indonesia is a key supplier of coal and liquefied natural gas to

China’s energy-intensive coastal areas, which have difficulty

accessing fuel inputs from China’s northwestern regions. One

could also group Indonesia with China’s principal commodity

suppliers in Africa and Latin America (World Bank: 2017).


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Figure 1: Breakdown of Indonesia’s Trade with the World in

2013

Figure 2: Breakdown of Indonesia’s Trade with China in2013


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Chinese outbound FDI into Indonesia has grown over the

past decade (see Table 3), as China went from a net receiver to

a net sender of FDI to Indonesia. The Heritage Global Investment

Tracker, which traces individual Chinese investments, identifies

dozens of Chinese investments and contracts in Indonesia

between 2005 until 2016, with a combined worth of some

$31.55 billion, a huge amount of investment (The Heritage

Global Investment Tracker: 2017).

Of this value, approximately $12 billion went into the coal,

gas, and oil sectors, and a further $6.6 billion into the steel

sector demonstrating the resource-seeking motives of Chinese

investors in Indonesia (Nargiza Salidjanova and Iacob Koch-

Weser: 2015).

Table 3: Stock of Chinese FDI in Indonesia


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3) Indonesia and China economic situation after AIIB

cooperation

a) Positive Prediction

AIIB initiative is the establishment of a relevant step with

the spirit of accelerating economic development and integration

of Asia through the promotion of investment in the

infrastructure sector. AIIB priority areas which include

transportation, energy, communication, industry and

agriculture are also becoming a priority in developing countries.

Openness in terms of membership (open regionalism) is also

showed that AIIB is not be managed exclusively by the emerging

countries in Asia but also open to countries outside the region.

Countries in the region can support the existence of AIIB with

consideration of the financing gap for infrastructure financing

where high financing needs cannot be met by the MDBs (Multi

Development Banks), so AIIB can be as an alternative source of

financing (Makmun Syadullah: 2014).

China’s role in AIIB actually has worried many dominated

countries in Asia, especially western economic power and its

allied (US, EU, and Japan), there are some points why AIIB will

give positive monetary environment in Asia, but agonize for

western domination: A) China has created a regional bank

among its Asian neighbors, in a move opposed by the Obama

Administration. B) U.S. allies have sided with China despite

Washington’s concerns that China might be using the bank to

circumvent more established international banks, such as the


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World Bank and the International Monetary Fund, long

dominated by the United States and Europe. C) China’s

supporters in the effort contend that their participation in the

new bank will ensure greater transparency while avoiding

China’s tendency to loan money without protecting the

environment, local populations, and clean governance (Sabrina

Snell: 2015).

Though China is the gargantuan player in international

trade, in investment China is still below of Japan, EU, and the

USA though (see Table 4). Thus, China gradually shifting

strategy from a passive to a more active role in the development

of regional institutions and standards, and this trend is reflected

in the newly-formed Asian Infrastructure Investment Bank

(AIIB). And there is increased competition for spheres of

influence within the region; however, the result will be more an

overlapping of relationships and institutions, rather than the

carving out of exclusive domains along the China-US divide (Bob

Herrera-Lim, Andy Liu, Tobias Harris and Victor Cha: 2015).


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Table 4: FDI Inflows in ASEAN

In spite of the fact that China’s AIIB is challenging West Allied

infrastructure investment domination (Bretton Wood Observer:

2014), global financial architecture (Robert Wihtol: 2015), new

multilateralism and the erosion of the West (Thomas Renard:

2015), Potential economic game changer, and made China As a

new major player in the world of multilateral development

finance (geopolitically and reshaping world order) (EPSC

Strategic Notes: 2015), but obviously ensure emerging power

especially in Asia (including ASEAN) and particularly China to

maintain and establish alternative for investment and

infrastructure corridor independently, and it will become

advantage for Indonesia which has US$ 3,360.7 M capital

subscription and 33,607 number of shares (Articles Agreement

of AIIB: 2015).


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b) Negative Prediction (Indonesia’s more dependent toChina)

China important role as big trader (the international trade

key actor/player which has at least 2% contribution in

international trade/export and import) started in 1990s after

trade domination core moved to Asia and in 2010 surpassed

Germany and Japan to put China became the second number

of international trade player under USA (Bayoumi: 2011). And

in 2014 “China is a true mega-trader − a position last held by

colonial Britain, with trade significant not only as a share of

world trade (11.5%) but also of its own GDP (47%)” (Standard

Chartered Special Report, 2014). China’s share of the world has

risen to 11.5% in 2012 from 7.5% in 2007 (See: Table 5)

Table 5: Merchandise Export as Shares of World Exports by

Mega-Trader, 1870-2030

Source: Subramanian & Kessler, 2013


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China’s main exports to Indonesia are manufacture

products, machinery, and transportation tools. Meanwhile,

China’s main imports from Indonesia are raw materials (Oil and

Coal) and investment destination (Poppy S. Winanti: 2015).

Thus, only make Indonesia position similar to colonialism era

as raw materials supplier and more dependent to China

(Revrisond Baswir: 2015). Started in 2007, Indonesia trade

relations to China always deficit (See: Table 6), and after AIIB,

the condition will be more clear that Indonesia’s position will be

more dependent to China economic domination. Besides AIIB

will make China get a bulk of infrastructure contracts, but

Indonesia has complained about the construction standards of

Chinese- built power plants (June Teufel Dreyer: 2015).

Furthermore, China’s infrastructure credibility should be asked

to guarantee and transparency of the China quality

commitment.


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Table 6: Indonesia-China Trade Flows From 2004-Jan 2011 (in

USD)

4) Conclusion

China after AIIB has double-edged influence for Indonesia,

the positive’s side Indonesia has an alternative for

infrastructure and economic development besides various Multi

Development Banks (MDBs) that already existed such as IMF,

ADB, IDB, and WB. It means Indonesia will be less dependent

on West economic condition and affection. But on the other

hands, China’s hegemonic economy power gradually put

Indonesia’s position more determined to them.

Some negative conditions above, due to the major problems

and challenges of the economic performance of Indonesia's

diplomacy, among others, do not have a clear strategy, and

without the infrastructure support and strong fundament

policies, as well as weak on domestic readiness for the

challenges and demands of the international political-economy

dynamics (Dinar Henrika Sinurat, 2015).


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Weak conditions in Indonesia related to the international

political-economy diplomacy has deep roots and not solely

because of the method or the management of diplomacy which

does not reflect national interests, but also related to the

paradigm of thinking and way of life of the nation that has not

adhered more with the character of the Indonesian values

(Pancasila and Constitutions)

The strong currents of globalization characterized by the

interconnected and integrated world have made sovereign

borders between countries are increasingly blurred. This

process facilitates capital inflows in every aspect of the region to

accelerate the process of liberalization and capitalization of

political-economic-social-cultural aspects (Manfred Stegger,

2003). And especially in the economy only makes Indonesia a

mere supplier of raw materials needs and market destination,

the actual form was not much different from the conditions of

Indonesia when still in the grip of colonialism.

Indonesia is inseparable from colonialism whichever

survived for 350 years, and colonialism is a matter related to

lose or profit colony, colonialism is not a matter of courtesy or

about the obligations, this problem is a matter of finding life,

about business or corporation who seeks life/profit (Sukarno,

1928).

According to Sukarno, Indonesia entered the colonial

economic system if the Indonesian economy; first, merely

positioned as a supplier of raw materials for the developed


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industrial countries. Second, the Indonesian economy serves as

a product market by industrialized developed countries. And

third, the Indonesian economy serves as a place to play the

advantages of capital in countries that are rich industrialized.

And conditions such as Sukarno picture that is being faced by

Indonesia at this time.

To address this, it needs a comprehensive solution, which is

characterized by structural (top-down) and cultural (bottom-

up), therefore the repair process occurs in two directions. The

first to perform a structural correction of the colonial economy

that was still here in Indonesia through amendments of 1945

Constitution, and the Law is still pro the actions of

colonialism/capitalism, and structural changes in the political-

economic system to directs Indonesia returned to the people’s

sovereignty, which is understood as a democratic economy

(Revrisond Baswir, 2015).

The Democratic economy itself is an economic democracy,

where economic engagement is not only controlled by the

owners of capital (capitalist) but all elements of society.

Democratic economy arranged on the principle of kinship, it is

the cooperative principle of family, so Indonesia in international

relations is not only talking about free-trade but should speak

related cooperation/collaboration, not competition (Muhammad

Hatta, 1977). Hopes that will affect the way of Indonesia’s

foreign policy point of view shifts in people’s interest, no longer

national interest or commodity interest, because the national


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interest and the commodity itself are controlled by the

mafia/capitalist or oligarchy.

While the culture solution is a solution that requires a long

process, because it is more to the public self-awareness that

Indonesia needs to have a strong cultural character, hence not

to be eroded by the influence of globalization. Cultural

awareness of the community itself is actually more important

and fundamental (basic structure), due to influence the mindset

and actions of the public directly. This fact has been touted by

Trisakti, which is politic sovereignty, independent of the

economy, and personality in culture (Sukarno, 1963). Which

then try reappointed by President Jokowi through a mental

revolution movement in accordance with his Nawacita,

hopefully.


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